The challenge of borrowing for Greek REICs in an environment of rising interest rates
There are signs that soaring interest rates are here to stay for longer than initially expected and, in this condition, both European and Greek REICs are challenged to meet their liabilities.
The European Central Bank's Governing Council has recently decided to keep interest rates unchanged. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility were unchanged at 4.50%, 4.75% and 4.00% respectively.
Meanwhile, the Federal Reserve also kept interest rates unchanged in November, 1st in a range of 5,25%-5,50%. In a press conference after the end of a two-day policy meeting, Jerome Powell said the better course of action for now, given the uncertainties, was to maintain the Fed's benchmark overnight interest rate in the current 5.25%-5.50% range, and see how job and price data evolve between now and the next policy meeting in December. Powell said it remained unclear whether overall financial conditions were yet restrictive enough to tame inflation, that he still considers to be far above the central bank's 2% target.
The Bank of England, on the same path as the ECB and the Federal Reserve, left interest rates unchanged, but said monetary policy will likely need to stay tight for an “extended period of time.” The Monetary Policy Committee voted 6-3 in favor of keeping the main bank rate at 5.25%, with three members preferring another 25 basis point hike to 5.5%.
In this context, Greek REICs' outstanding liabilities are to be met, whether this means servicing or refinancing their existing debt. According to figures unveiled in their financial results as of the first half of 2023, the Greek REICs have borrowings that reach a total of €2,060,060,354, while at group level the amount reaches €2,944,851,480.
At the same time and based on data from the National Stock Exchange, the Greek REICs trade at a lower discount relative to the European ones. Justifiably so, as in addition to the greater difference (spread) between rental yield and borrowing costs, they have a greater yield spread compared to government bonds.
In particular, Prodea Investments has entered into interest rate caps for the purpose of hedging cash flow risks, due to the Group's exposure to the change in the floating interest rate, with respect to floating-rate bonds. All borrowings have variable interest rates, with the exception of the ‘’green’’ bond which has a fixed rate.
According to LAMDA's first quarter of 2023 financial results, the company reported that on 30.06.2023, short-term bank bond loans mainly include the bank bond loan of the subsidiary company
L.O.V. S.M.S.A. ("LOV"), which signed on 29.07.2022 a new common bond programme with Eurobank and
Piraeus Bank for an amount of up to €365m with three distinct series and an interest rate of 2.70%, plus 3-month Euribor. Until 30.06.2023, an amount of €361m has been disbursed, which is classified in the short-term part of the Group's borrowings. The Group, in cooperation with the banks, is planning to refinance said loan, as well as the bank loans related to the rest of the Shopping Malls, in the context of a planned restructure within
On 31.05.2023, BriQ signed a Joint Bond Loan Program of up to €4.800 thousand to finance an investment project for
the construction of a new LEED-certified office building at Poseidonos 42 in Kallithea, Attica, in the context
of the Recovery and Resilience Facility. 50% of the investment plan will be financed with a fixed interest rate of 0,35% through
REDS operates free of long-term debt or any bond issues, according to the REIC's six-month report, while it entered into an open mutual account credit agreement with Alpha bank and, by 30.06.2023, it had made a disbursement of €2,500,000.
TRASTOR entered into a Common Bond Issue Programme with Piraeus Bank S.A., secured by collateral agreements, on 03.03.2023, with a total nominal value of up to € 250,000,000, a seven-year maturity and a Euribor interest rate of 3 months, plus margin. Part of the loan, i.e. € 200 million, was used to fully repay existing bank loans.
Regarding Noval's Green Bond, this has a fixed interest rate of 2.65%, its fair value is estimated to be approximately €21.3 million lower than the accounting value.
Dimand declared on its financial results as of June 30, that on 28.03.2023, a Common Bond Loan was issued with “THE ETHNIKI HELLENIC GENERAL INSURANCE COMPANY S.A.” (ETHNIKI INSURANCE) as the bondholder and the Company as the issuer, for an amount of up to €10,000,000, a term of 3 years and a fixed interest rate of 8%, in order to cover working capital needs and/or the investment program of the issuer. As of 30.06.2023, Dimand has proceeded with the full disbursement. A guarantee in the amount of €1,200,000 has been given to secure the above mentioned bond loan.
The Lampsa Group's and the company's actual weighted average borrowing rates, based on the balance sheet of June 30, 2023, were 3,01% and 3,06% respectively, compared to 4,24% as of December 31, 2022.
Premia Group's loans are floating rate loans with the exception of the €100 million common bond loan, which has a fixed interest rate. Consequently, Premia is exposed to fluctuations in interest rates prevailing in the market, which affect its financial position and cash flows. Borrowing costs may increase or decrease as a result of such fluctuations.
Finally, according to its financial statements, the debt ratio of Alpha Astika Akinita (Total Liabilities/Total Assets) is at 6.02%. Cash and cash equivalents on 30.6.2023 amounted to €56.84 million for the Group and €53.18 million for the Company. The Group announced that it has a strong cash position and, therefore, there is no need for borrowing.